Brexit is a popular term these days and it has well and truly worked its way into the countries vernacular. Some people are disenchanted with the idea, whilst others remain incensed at the lack of action, whatever your position is on Brexit there is one unifying problem that ties each side together: the cost of living post-Brexit. Everybody wants to know what they can expect, at the very least they are curious as to how the economy will shift, and what effect this will have on things such as wages, energy prices, food prices and travel costs. Will there be any effect at all? Will it be positive or negative? In this guide, we will outline for you the thinking regarding the cost of living post-Brexit. This is subject to constant change and will be influenced by myriad factors that themselves are mutable. Estimating the costs is not an exact science, and our attempts in this guide are to provide an as-accurate-as-possible summation of the topic at hand. Understanding what could change could help consumers avoid unexpected costs and the needs for emergency financing like a short term loan or borrowing money from a friend or family member.
The Increase In Food Costs
It is important that we caveat any observations on food price rises, as well as prices in general, with the fact that should Theresa May’s “21-month transition” period be put into effect then nothing will change regarding future trade and imports until this time period has elapsed. However, this is not set in stone so analysis of the outcome(s) is still vital. To understand the potential increase/decrease in cost we must first identify the factors that themselves determine food cost:
- Tariffs (taxes on imported/exported goods)
- The value of the pound
- Events that slow physical progress, such as extra/enhanced border checks
If tariffs are put into place as a result of our exit from the EU (currently we do not pay any tariffs owing to our member status) then the end-price of products could quite possible rise as well (unless we enact trade agreements with the EU post-Brexit). If tariffs are put into place on product ranges, then, a range of examples as provided by the University of Sussex posits that the following could occur:
- Dairy products could rise by 8.1%
- Oils and fats could rise by 7.8%
- Meat products could rise by 5.8%
- Vegetable could rise by 4%
These are of course estimations and are subject to change. Please see the full report as listed in our sources at the end of this guide for more information.
The Value Of The Pound
This point is slightly simpler than the one that came before. Essentially, if the value of the currency that we use decreases whilst the value of the currency that is used by other countries (that we purchase products from) holds steady or increases then it will be more expensive for us to purchase goods as there will be a larger difference in the value of these currencies. An example, as provided by the BBC is that during the 2008 financial crisis, our currency value fell by 21%, and food prices rose by 8.7%.
Barriers And Border Checks
These would obviously have a direct and proportional impact on the longevity of the products that cross into the U.K and would also significantly increase costs for businesses as backlogs would occur, vastly increasing time spent during delivery and/or in transit. These two things combined would inevitably increase the end-cost for shoppers.
The Increase In Energy Costs
Understandably, the increase in energy costs post-Brexit is an incredibly complex process. In order to generate an answer or a response to this point that makes sense first we must look at where our energy comes from. 12% of all gas used and 5% of electricity used per year is purchased by us from the EU. The remaining majority of our energy imports come from Norway or Qatar.
We import energy in two ways in the U.K. Firstly, we import gas and electricity via pipes called interconnectors. Interconnectors, in the form of pipes and/or wires, can carry this energy from one country to another. The EU Internal Energy Market facilitates the sale and purchase of energy between EU countries – simplifying the process dramatically and providing competitive rates. When we leave the EU, we would also leave the EU Internal Energy Market. So, unless new deals are put into place, the cost of trading and therefore importing energy could rise, which could in turn increase the costs for the consumer. An unexpected energy bill at increased prices could lead many people to need a payday loan to get through to the next month.
The second way we import energy is via the gas pipeline network, and via ship (the latter mainly from Qatar and in the form of liquified natural gas).
These structures and markets have been in place for a great many years and should we leave the EU without a new/modern back-up in place then we could be forced into an old model of trading energy which is less efficient. An increase in energy costs could also be down to a number of different factors:
- If we exit the EU Internal Energy Market, we will lose the beneficial status regarding trading that we have enjoyed since our entry into this market (the National Grid has estimated that the exit from this market could cost U.K consumers an extra £500 million per year in additional costs)
- We would not be able to influence energy politics or legislation regarding energy trading and prices; therefore new regulations could be put into place in the future that are of a detriment to the U.K and we would be without voice to stop the change or offer an alternative
- We could lose our access to Eurotam (an EU body that restricts and governs the use and implementation of nuclear materials including staff) which could make it harder to run and service or open new nuclear power stations
It is important again to mention that everything at this stage is still subject to change and if new deals are put into place then things may well stay the same for a period of time whilst the U.K fully transitions outside the EU.
As stated in the introduction to this piece, measuring and estimating the cost of living post-Brexit is not and can never be a truly exact science. There are a great many moving parts to the deal that are subject to rapid change and swift evolution. The takeaway from the guide should be that the cost of living post-Brexit could rise, however it is not likely (given the most recent thinking and analysis) to be a catastrophic rise and should costs rise above expectation then it is likely that the market will stabilise in due course as it has done many times in the past.
At Wizzcash, we are happy to put these guides together for you so that you can learn more about current events, or about other things of concern, such as saving money as a student, or the impact of bad credit.
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